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Foreign Exchange

FX: Renminbi revaluation noise full of sound and fury

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UBS economist Jonathan Anderson describes its as "one of the most, nay, the most overly-hyped themes in the markets today". But the question of when and if the Chinese renminbi – currently pegged at 8.28 renminbi to one US dollar – will be revalued against the US currency continues to fascinate and obsess global foreign exchange markets. There appears to be a growing consensus among analysts that the Chinese government will make some adjustment to the peg in the near future, perhaps even in the present quarter.

Citing continually increasing foreign exchange reserve inflows, a corresponding sharply rising trade surplus and more aggressive external pressures (a polite term for more voluble US and European whingeing) Anderson concludes: "The chances of a near-term move, if not overwhelming, then are at least greater than ever before."

And what is the likely effect of all this speculation and hand wringing? According to UBS, almost nothing. "Any reasonable adjustment scenario would have very little near-term impact at home, equally little impact on China's neighbours and needless to say, virtually zero effect on US imbalances, inflation, growth or any other global economic indicator," says Anderson.

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